Qtrade Direct Investing

Weekly Market Pulse - Week ending October 30, 2020

Market developments


Markets were rocked by volatility last week as renewed lockdowns across Europe and lack of U.S. fiscal support pose increasing challenges to the global economic recovery. Belgium reentered lockdown and the U.S. could be next with cases rising in many states. Even the resilient tech sector which has led the rally slumped with Apple, Amazon, and Twitter slipping after reporting earnings. The upcoming Presidential election also adds to the uncertainty and the macro implications based on policy priorities of the candidates. The S&P 500 fell 5.64%. The S&P/TSX Composite fell 4.44%.

Fixed income:

Bond yields rose as investors braced for the elections. The U.S. Treasury 10-year yield rose 3 basis points, ending the week at 0.87%. The Government of Canada 10-year yield also rose 2 basis points ending the week at 0.66%.


Oil sold off 10.36% as coronavirus cases continue to surge. The recovery going forward is looking rockier and the demand for the commodity is precarious. Copper fared better declining 2.51%. Gold prices fell 1.22% on the rising U.S. dollar.

Performance (price return)

Performance - Price return

As of October 30, 2020

Macro developments

Canada – Bank of Canada Rate recalibrates asset purchases; August GDP expands on services

The Bank of Canada continues to reiterate their stance of holding rates at its effective lower bound until inflation sustainably reaches 2%. This is not expected until 2023 when the economic slack is forecasted to be fully absorbed. More importantly, changes to the quantitative easing program were announced: the amount of purchases will start be scaled back from $5B to $4B and will focus its purchases on longer-term debt. Much like the U.S. Fed’s “Operation Twist” back in 2012, this recalibration is indirectly yield curve targeting which should help suppress the steepening of the yield curve and reduce borrowing rates for households and businesses who borrow at longer maturities.

GDP expanded 1.2% in August, following 3.0% growth in July. The increase was driven by services which grew 1.5%, with the hardest hit sectors continuing their rebound. Statistics Canada provided a preliminary estimate of a 0.7% gain in September. If accurate, this would imply that Q3 GDP expanded approximately 10% (47% annualized). Growth in Q4 is expected to significantly slow as restrictions are reimposed, with Bank of Canada only forecasting growth of 0.2%.

U.S. – Q3 GDP strongest on record; Personal income and spending rise; Durable goods orders rise to pre-pandemic levels

GDP rebounded 33.1% annualized in the third quarter fueled by a 40.7% rebound in consumption. Goods consumption has fully recovered and sits 6.7% higher than pre-pandemic levels, but services spending remains 7.7% lower. Other bright spots include business investment and residential investments strongly rising, while non-residential investment and government spending declining in the quarter. Despite this unprecedented growth, output remains 2.7% below the peak seen in Q4 2019. With fiscal stimulus looking increasingly unlikely this year, further growth in Q4 will be much slower.

Personal incomes rose 0.9% in September, compared to a fall of 2.7% in August which was due to a decrease in government benefits. Income from compensation grew 0.8% in September, the slowest since May consistent with a slowing labor market. Meanwhile spending increased 1.4%, accelerating from a 1.0% rise in August. Solid growth was seen in spending in both services and goods, at 2.0% and 1.1% respectively.

Durable goods orders rose 1.9% in September, from a revised 0.4% gain in August. The gain was once again driven by transportation equipment rising 4.1%. Excluding transportation, orders rose 0.8%. This increase has pushed business investments back to pre-pandemic levels.

International – Euro-area Q3 GDP rebounds strongly with uncertain Q4; European Central Bank reviews tools to recalibrate policy; Bank of Japan holds steady but ready to act; China industrial profits falls

Euro area GDP rose 12.7% in Q3 following a11.8% decrease in Q2. The reading beat market consensus of 9.6%, as double-digit increases were seen in France (+18.2%), Spain (+16.7%), and Italy (+16.1%). In Germany, the largest economy in Europe, output rose 8.2%. The recent resurgence in cases puts Q4 growth at risk, with consensus of just a slight gain of 2.0% as countries re-enter a partial lockdown.

The European Central Bank (ECB) hinted at more stimulus in December as the region re-enters lockdowns. ECB President Lagarde said “the euro area economic recovery is losing momentum more rapidly than expected” with risks clearly tilted to the downside. The ECB will be reviewing all the tools at its disposal to recalibrate its monetary policy.

The Bank of Japan seems to be on the same page as the ECB. Governor Kuroda said the Bank is ready to act if needed amid mounting uncertainty of rising cases. Japan is an export reliant economy, and the resurgence of cases and reimposing of lockdowns abroad could deteriorate business conditions in the country.

Chinese industrial profits grew 10.1% year-over-year in September, a significant slowdown from 19.1% in August. In absolute levels, industrial profits in the month rose as the slowdown was due to the base effect. Overall, prices were less favorable for industrial businesses while costs rose. The manufacturing industry saw a 1.1% increase, while the profits in coal, oil and natural gas saw large declines.

Quick look ahead

Canada – International merchandise trade (November 4); Labor force survey (November 6)

The Canadian trade deficit is expected to narrow in September after having widened substantially since the crisis began. Followed, we will get employment numbers for October forecasted to have little changed as lockdowns have been reimposed. Expectations call for a gain of just 75K, with no change in the unemployment rate currently at 9.0%.

U.S. – Presidential election and factory orders (November 3); Federal Reserve meeting (November 5); Non-farm payrolls (November 6)

The presidential election between current President Donald Trump and Presidential Candidate Joe Biden will finally be held. A record number of people have already voted driven by the impact of the coronavirus, and polls show that Biden has a nearly two-to-one advantage of winning. The Senate elections will also be a key point to watch, as a Blue Sweep (Democratic presidency and Senate majority) seems to be the market consensus currently which could result in higher fiscal spending. Even with the polls pointing to a Democratic victory, markets are still wary as Trump had defied odds in the 2016 Elections.

The Federal Reserve will meet next week with no policy changes expected, but the outlook seems gloomy with the Fed having lowered the minimum loan amount to $US100K from $US250K amid a volatile last week. There may be hints of additional forward guidance as cases and uncertainty have significantly risen.

Lastly, non-farm payrolls are expected to gain another 600K in October, following the 661K in September. Job growth continues at a solid pace but has significantly slowed as the final stretches of the recovery will be the hardest. The unemployment rate is forecasted to drop 0.2% to 7.7%.

International – China PMI (November 3); Eurozone retail sales and Germany factory orders (November 5); Germany industrial production (November 6)

China has continued to lead the recovery thus far, and little change is expected both the Services and Manufacturing PMIs. Both readings are expected to stay expansionary, with emphasis on services which has lagged the recovery.

Eurozone retail sales are expected to have decreased in September as cases have risen. Meanwhile Germany factory orders and industrial production in September are forecasted to increase driven by strong automobile production.

Aviso Wealth Inc. (“Aviso Wealth”) is the parent company of Credential Qtrade Securities Inc. Aviso Wealth is a wholly-owned subsidiary of Aviso Wealth Limited Partnership, which in turn is owned 50% by Desjardins Financial Holdings Inc. and 50% by a limited partnership owned by the five Provincial Credit Union Centrals and the CUMIS Group Limited.

Online brokerage services are offered through Qtrade Investor, a division of Credential Qtrade Securities Inc., a wholly owned subsidiary of Aviso Wealth Inc. and Member of the Canadian Investor Protection Fund.

Northwest & Ethical Investments L.P (“NEI” or “NEI Investments”) is a subsidiary of Aviso Wealth; and NEI Funds are related issuers of Credential Qtrade Securities Inc.

This material is for informational purposes only. While this material has been compiled from sources believed to be reliable, Qtrade Investor does not guarantee the accuracy, completeness, timeliness or reliability of this information. Information, figures and charts are summarized for illustrative purposes only and are subject to change without notice. All investments are subject to risk, including the possible loss of principal.